Transcript of "unia.com.ua-lib-doc-.."

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EBRD MORTGAGE LENDING GUIDELINES FOR UKRAINE
These are the guidelines for mortgage lending against EBRD loans granted to
Ukrainian banks. It is recommended that these guidelines be applied by Ukrainian
banks not only with respect to mortgage loans financed under EBRD loans (as
required under the relevant loan agreement) but also to all other mortgage loans
issued by Ukrainian banks that receive EBRD credit lines to finance mortgage
lending.
The guidelines are presented in five sections:
1. Application Process
2. Loan Application Assessment and Approval
3. Finalisation of Agreements
4. Loan Monitoring and Servicing
5. Management Information Reporting
1. APPLICATION PROCESS
The initial stages of the loan application process and first contact with the potential
borrower are critical to assisting the bank in making a decision to grant a loan with an
acceptable level of risk for the bank.
Initial contact will usually be by direct contact with the borrower or through an
intermediary with which the bank has a co-operation agreement.
During the initial interview the objective shall be for the bank officer to give the
potential borrower information on the bank’s loan products, lending criteria, loan
granting and loan servicing procedures. The bank officer shall also obtain basic
information on the borrower's financial condition and personal circumstances so that
obviously ineligible customers can be screened out at this initial stage.
The bank officer shall collect more detailed information on the customer by using a
standard loan application & information form. The borrower shall be advised that the
collection of this data and the initial calculations of the loan amount and repayments
are for information purposes only at this stage and do not commit the bank to granting
a loan.
The customer must be given information regarding the bank’s processes and
requirements, which shall include:
a) Consumer confidence requirement, that is the ratio that defines the payment-
to-income ratio
b) Collateral requirements and maximum loan-to-value ratio
c) Documents required from the borrower and an indication of how the bank will
use the documents and information contained therein

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d) Procedures for concluding the loan and mortgage agreements, together with
their terms and conditions
e) Requirement to appraise the collateral and assess its condition and legal status
f) An initial indication of the maximum amount of loan that may be offered,
together with an indication of the amount of the loan repayments and interest
payments
g) An estimate of the personal financial contribution to be made by the borrower
from their own resources – balance of the purchase price, all fees, taxes etc.
Information given to the customer shall conform to the European Voluntary Code of
Conduct for Pre-Contractual Information for Home Loans (Appendix 1).
As a result of this interview process there shall be an in-principle decision as to
whether the customer is suitable for loan facilities from the bank, and loan repayment
and interest instalments shall have been calculated and a loan file set up. If at this
stage the potential borrower is rejected as not meeting the bank’s criteria, the
application details shall still be retained and entered into a central database for future
reporting requirements. If the applicant is considered suitable as a potential borrower,
the loan file and applicant details shall be passed to the division of the bank
responsible for checking the information and underwriting the loan application.
The bank shall have a fully documented credit policy detailing its lending policy, and
the processes and procedures for the complete loan lifecycle. This shall comprise a
written description and a flow chart showing the steps involved, and shall include the
following stages:
a) Lending criteria
b) Customer interview
c) Obtaining required documentation
d) Assessing solvency
e) Completing loan application & mortgage documentation forms
f) Underwriting the application
g) Credit referencing / scoring / assessment
h) Collateral valuation
i) Credit committee decision process and documented authority levels
j) Standardised loan & mortgage document preparation
k) Standard conditions for lending
l) Loan and mortgage commencement process
m) Legal process and registrations
n) Post completion monitoring
The bank shall have in place a comprehensive training program to ensure all staff
involved in the lending and monitoring process are fully trained.
The bank shall also have in place adequate controls and checks to ensure credit
policies are properly applied.
The following guidelines identify the minimum requirements in terms of the details
of the applicants, and the financial and other information required and the

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documentation to be provided to the bank to support the loan application. The bank
can add additional requirements to meet its operating regulations:
Applicant Details
1. Who can be accepted as a borrower:
a. Ukrainian citizens
b. Foreign nationals resident in Ukraine
c. Age limits
i. Minimum age - age of majority (currently 18) at date of
commencement of loan
ii. Maximum age - not above retirement age at scheduled final
maturity date of loan (65 years for males / 60 years for females)
If the borrower opts during the life of the loan to retire prior to the
loan maturity date they shall confirm this to the bank so that a
review of the borrower's current solvency can be carried out.
d. Stable & permanent income meeting ability to repay loan
e. No criminal record for finance-related offences
2. Confirm applicant's identity:
a. Tax payer identification reference number
b. Passport (original & photocopies of pages 1, 2, and 3 and the residential
registration page). To be checked for authenticity against the best
available information including any future central registry / database
c. Resident foreigners to provide their national passport (original &
photocopies) as registered with the Ukrainian Interior Ministry
d. Marriage Certificate, if any
e. Birth certificate[s] for child/children, if any
f. Permission of state custody bodies, if required
3. Income documents:
a. If employed
i. Certificate of income reference from primary employer detailing
actual income over last 12 months and confirming income tax paid
ii. Proof of any secondary income that is to be taken into account
together with proof that this has been properly declared for tax
purposes
iii. Income reference for any spouse’s income, if relevant
b. If self-employed
i. Tax payer ID code registration certificate
ii. Private entrepreneur state registration certificate
iii. Business authorisation documents
iv. Financial accounts for past 3 years verified by tax authorities
v. Income and expenses records for last 6 months
vi. Current income statement from tax authorities for period since end
of last tax year to date
vii. Tax statements for past 3 years
viii. Bank references

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ix. Business plan for current and next 3 financial years if in existence
4. Outgoings:
a. Analysis of anticipated outgoings in respect of the property being
purchased e.g. mortgage loan payments, insurance, communications and
municipal charges, including utility bills, and property taxes
b. Borrower’s monthly payments related to other property, automobiles etc.
c. Liabilities on all other loans;
d. Other mandatory expenses e.g. alimony or other support or maintenance
costs
e. Long-term savings contracts
5. Previous credit history:
a. Details, including loan & collateral agreements, of any credit transactions
over last three years (as market develops increase this to five years)
b. Confirmation that any existing loan agreements are currently up to date
c. Proof that communal payments are paid in full
d. Proof of rent payments, if applicable, for last three years
6. Existing relationship with bank:
a. Details & turnover of any existing accounts (of all types) with the
proposed lender, for example average monthly balance, average monthly
credits & debits
7. Existing relationship with other bank(s)
a. Details & turnover of any existing accounts (of all types), for example
average monthly balance, average monthly credits & debits
Property Documents
The borrower shall provide the following documentation:
1. Originals or notarised copies of title documents relating to the property to be
mortgaged
a. If title not currently registered in name of borrower:-
i. Sale-purchase, investment or other agreements on acquisition of the
relevant immoveable property
b. If title already registered in name of borrower:-
i. Extract from the BTI register certifying ownership of the borrower;
and
ii. Technical Certificate (Passport) from the BTI register – This should set
out the specifications and drawings of the property; and
iii. Title document, being inter alia one of:-
• Certificate of right of inheritance, issued by public notaries
• Certificate of acquisition of the property by public sale, issued by
private & public notaries
• Sale-purchase or other agreements on alienation of immoveable
property

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• Court decisions on acknowledgement of property rights
(The above list of documents certifying title to immoveable property shall at all
times comply at a minimum with the title certification requirements of Ukrainian
law in force from time to time.)
c. Extract from Residential Services Bureau (ZEK) book on registration of
inhabitants
d. Notarised consent of spouse or custody authorities, if required
Loan requirements and details
1. Purpose of loan
a. Owner occupation
2. Loan to Value ("LTV") ratio
a. Maximum LTV ratio shall be 70% of the appraisal value
3. Loan currency can be:
a. UAH
b. USD
c. Euro
4. Loan term
a. Minimum 5 years
b. Maximum 15 years (as the market develops in the Ukraine it is desirable to
extend the maximum term to at least 25 years)
5. Maximum loan size
a. Maximum advance for security USD 75,000 (may be increased to USD
100,000 upon EBRD’s approval)
6. Interest rate basis
a. Fixed rate
b. Floating rate
7. Interest calculation basis
a. Standard interest calculation steps based on defined step period (i.e. daily,
monthly, annual).
b. True interest rate to be stated (effective rate or APR)
8. Loan repayment basis
a. Monthly payments to include:
i. Payment of interest
ii. Payment of any imposed penalties e.g. late payment penalty
iii. Payment of principal
b. Payments to conform to payment schedule set out in loan agreement
9. Early repayment of loan
a. To discourage early repayment of the loan there shall be provision for a
notice period or financial penalty

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Solvency Requirements
The bank shall have its own methodology for calculating solvency and shall continue
to use this methodology but to include the additional criteria set out below.
1. Maximum payment-to-income-ratio to be between 35 and 50%
This ratio specifies the maximum amount of net after tax monthly income
available to meet mortgage repayment. If there are joint applicants the joint
income is included.
The maximum permitted ratios shall be:
a. Local currency loans with local currency income stream - 50%
b. Local currency loans with only hard currency income stream - 50%
c. Hard currency loans with hard currency income stream - 50%
d. Hard currency loans with only local currency income stream - 35%
2. Borrower contributions to be provided from own resources (i.e. not additional
loans)
a. Balance of purchase monies over and above mortgage loan amount, i.e.
minimum of 30% of the appraisal value of the relevant property
b. All fees & expenses associated with the loan and mortgage agreements,
and the sale-purchase agreement including agent's commission (if any),
notary fees, appraiser fees & insurance premiums
c. Any state duties or taxes for registration of the various agreements
d. Fees for the registration of the title deeds for the real estate and mortgage;
e. Bank fees (if any)
f. Moving expenses
Pre-contractual information to be provided to potential borrower to conform to
European Voluntary Code of Conduct for Pre-Contractual Information for Home
Loans
The bank shall comply with the European Voluntary Code of Conduct for Pre-
Contractual Information for Home Loans. This contains two sections describing the
information that should be provided to the borrower before completion of the loan
agreement:
a. Section 1 - General information about home loans on offer
b. Section 2 - European Voluntary Code of Conduct for Pre-Contractual
Information for Home Loans
The Code is attached as Appendix 1 to this Schedule 1.
2. LOAN APPLICATION ASSESSMENT AND APPROVAL
The division of the bank responsible for assessing the application data and preparing
an assessment and recommendation for the credit committee shall now evaluate the
information that has been collected. Other divisions of the bank, such as the collateral

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appraisal division, security office & legal department may be involved in this process
by providing their conclusions and recommendations. This assessment shall be carried
out by an experienced loan officer independently of the process of obtaining data
from the borrower.
The underwriting process shall include the following steps:
a) Carry out background checks on the information provided relating to income,
loan history and other financial aspects of the borrower
b) Carry out checks on personal documents (e.g. passport) to prevent identity
fraud
c) Evaluate the borrower' consumer confidence and creditworthiness
d) Establish that the borrower has sufficient funds to cover their initial
contribution to the purchase (at least 30% of the value) and all other costs
involved in the transaction
e) Confirm the validity of the collateral title documents
f) Evaluate the adequacy and suitability of the collateral based on the appraiser's
report
g) Confirm the amount of the loan and the repayment terms & conditions
h) Provide a written evaluation and recommendation to the credit committee
If the loan underwriter at this stage reaches a conclusion that the loan cannot be
granted to the borrower, then the borrower shall be informed, in writing, stating the
reasons for rejection.
If the loan underwriter reaches a positive decision, the application shall then be
considered by the relevant credit committee, as established by the bank's procedures,
which will reach a decision based on the analysis and recommendations.
The documented decision of the credit committee shall indicate either:
a) That the loan application shall be rejected, indicating the reasons for this
b) That the loan be granted at normal terms and conditions
c) That the loan be granted but with greater risk criteria applied (e.g. requiring an
increased personal contribution from the borrower)
If the credit committee reaches a conclusion that the loan cannot be granted to the
borrower, then the borrower shall be informed, in writing, stating the reasons for
rejection.
The following guidelines identify the minimum requirements in terms of general
mortgage and collateral requirements. The bank can add additional requirements to
meet its operating regulations:
Mortgage requirements
1. Property shall be unencumbered and free from liabilities. This applies to the
property being mortgaged and to any other property being offered as additional
collateral either by the borrower or any guarantor
a. Not subject to other contractual obligations of the borrower, pledges or legal
claims

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b. No restrictions on the borrower's freedom to alienate mortgaged property
c. No restrictions on resale of property
d. Property not subject to outstanding possession and sale procedures
e. Verification of absence of tax pledge of the mortgage property in the State
Registry of Pledges of Moveable Property
f. Verification of absence of prohibition to alienate the mortgaged property
in the Unified State Register of Prohibitions on Alienation of Immovable
Property
2. If residential house
a. Mortgage to include parcel of land on which the property is situated
b. Land must become property of mortgagor on completion of purchase of
property
c. Land included to be sufficient to allow effective use of the building for its
intended purpose
3. Jointly owned property
a. Covenants of owners other than borrower to be obtained
b. Notarised consent of owners other than borrower to be obtained
4. Title to the mortgaged property to be registered as required by Ukrainian
legislation
5. Mortgaged property to be professionally appraised to:
a. Determine if the sale price is fair for the current market
b. Determine the reinstatement value of the property for insurance purposes
c. Determine if communal arrangements are satisfactory
d. Identify any defects in the property and its construction which may
i. Require further investigation and specialist reports
ii. Adversely effect saleability
iii. Result in future structural deterioration
iv. Require remedial treatment before completion of the mortgage
advance
v. Require remedial treatment as a condition of the mortgage advance
vi. Have an impact on insurance of the property or restrict the cover
available
If primary market property, the property shall be surveyed to ensure that issues
such as contaminated land and harmful material are identified and applicable
health and safety standards are met.
6. Mortgaged property to be insured for its total reinstatement value against risk of
accidental destruction, accidental damage or spoilage.
a. Insured amount to be total reinstatement value or the outstanding loan
amount, whichever is higher
b. Insurance to be effected by borrower
c. Borrower to be responsible for payment of premiums to insurance
company

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d. If borrower defaults on the insurance requirement, the lender must ensure
continuation of insurance cover and be able to recover any premium or
other costs from borrower
Collateral requirements
1. Documents required
a. BTI specifications
b. Apartment technical passport (technical document describing design and
construction of property – may be included in BTI specifications)
c. Seller’s title deeds for the apartment, e.g. sale-purchase agreement,
exchange agreement, privatization certificate
d. Reference of Residential and Maintenance Committee confirming no
communal payments debts
e. First legal charge (mortgage) on the property
f. Life insurance on borrower’s life for the amount and term of the loan.
Policy to be assigned to lender (this is applicable when life insurance is
available)
g. [Payment protection – this is for consideration as a future requirement
when this type of insurance becomes available]
h. [Permanent health protection – this is for consideration as a future
requirement when this type of insurance becomes available]
2. Property type
a. Primary & secondary markets
b. Single apartment in block of apartments
c. Residential house (single apartment) with land
3. Valuation
a. Maximum LTV ratio of 70% calculated on the basis of a) the market value
(as defined at Mortgage Requirement 5.a.) or b) the purchase price,
whichever is lower.
4. Structured formal appraisal in standard form
a. Selection & approval of appraisers
i. Independent (certified) appraiser for site visit & report (longer term
recommendation is for the appraiser to be truly independent from
the lender, i.e. not employed by the bank)
ii. To conform with current regulatory requirements
iii. The bank shall not use an appraisal report that has been arranged
by the borrower but shall develop a system of instructing
independent appraisers direct, with the borrower being responsible
for the cost.
b. Appraiser to report on a standard form of report which includes as a
minimum:
i. Description of property including:
• Address
• Year of construction

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• Type of property (apartment or single/double family house)
• Building method (traditional/prefabricated/other)
• State of repair (good/average/moderate/bad)
• Equipment (good/average/simple)
• State of refurbishment (fully/partially/not refurbished)
• Possibility of owner occupation (yes/no)
• Number of housing units in development
ii. Size of land in square metres
iii. Number of parking spaces or garage units
iv. Special renovation risks (yes / no)
v. Existing land contamination (yes / no)
vi. Services (gas/electricity/water)
vii. Number of storeys and is there a lift
viii. Common entrance - is there a coded lock, concierge etc
ix. Access to building & apartment
x. Location including:
• Characteristics of general location
• Similar properties for sale
• Demand
• Local infrastructure & amenities
• Condition
xi. Recent repairs / works
xii. Other one-off factors (e.g. access)
xiii. Calculation of value
• Insurance re-instatement value for insurance purposes
• Market Value - an assessment that the sale price is fair for the
current market
• Forced sale value - the recovery value of the property if
disposed of through repossession or enforced sale with no
consideration for speculative elements
xiv. Conclusions & Recommendations
3. FINALISATION OF AGREEMENTS
The loan and mortgage agreements shall be finalised according to the bank’s standard
procedures for concluding these agreements and conforming to the requirements of
Ukrainian legislation.
The following guidelines identify the minimum requirements for terms and
conditions to be included in the loan and mortgage agreements, together with
minimum requirements for property insurance cover. Other terms and conditions shall
be included to satisfy the bank’s normal requirements for such agreements.
Loan agreement

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A written agreement with the following minimum information and provisions, all of
which shall form part of the loan agreement:
1. Lender details:
a. Name, address and identification code in the Unified State Registry of
Enterprises and Organisations of Ukraine
2. Borrower details
a. Ukrainian citizen
i. Surname, first name, patronymic, permanent residence address and
identification number in State Registry of Individual Taxpayers
b. Non-Ukrainian citizen
i. Surname, first name, patronymic (if any) and permanent residence
address outside Ukraine
3. State the amount, currency, interest rate, term and maturity date of the loan
4. Declaration of the borrower that he/she has full legal capacity and capability
5. State purpose of loan
6. Collateral details
7. Interest rate basis, including requirements to vary the rate during the term of the
loan
8. Indicate basis for calculation of floating rate and provide details of indexation,
where applicable
9. Provide schedule of repayments to be made by borrower, including
commencement date and frequency
10. State conditions of default under which lender will enforce the mortgage
11. Define early repayment terms and penalties
12. Define late payment terms and other penalties
13. Lender must be able to assign its rights under the loan agreement to another party
without the borrower’s consent
Mortgage Agreement
A written, notarised agreement with the following minimum information and
provisions, all of which shall form part of the mortgage agreement:
1. Mortgagee details:
a. Name, address and identification code in the Unified State Registry of
Enterprises and Organisations of Ukraine
2. Mortgagor details
a. Ukrainian citizen
i. Surname, first name, patronymic, permanent residence address and
identification number in State Registry of Individual Taxpayers
b. Non-Ukrainian citizen
i. Surname, first name, patronymic (if any) and permanent residence
address outside the Ukraine
3. Declaration of the mortgagor that he/she has full legal capacity and capability
4. Confirmation of the amount of mortgage loan, the loan interest rate and the
maturity date of the loan

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5. Description of the property and/or the registration data for the property (if land is
included, a description of the land must also be included)
6. Property price as at signing date
7. If the mortgaged property is jointly owned, the agreement shall stipulate that it is
mortgaged with the notarised consent of all joint owners.
8. Mortgagor (and guarantor, where applicable) to confirm:
a. Mortgaged property is free from liabilities
b. Mortgaged property is not subject to other contractual obligations of the
mortgagor, pledges or legal claims
c. No restrictions on mortgagor to alienate mortgaged property
d. No restrictions on resale of property
e. Property not subject to outstanding possession and sale procedures
9. Mortgagor to be prohibited from alienating the mortgaged property in any other
way, including by the issuance of mortgage deeds
10. The mortgage agreement shall allow the mortgagee to assign the rights thereunder
to another party without the mortgagor’s consent to do so
11. In case of breach of the loan agreement or provisions of the mortgage agreement
by the mortgagor, the mortgagee shall have the right to enforce the mortgage. The
mortgagee shall have the right to commence repossession proceedings in the event
of non-compliance.
12. Mortgagee must have the right to enforce the mortgage outside of judicial process
13. Mortgagor to maintain the property in good condition
14. Mortgagor to insure the property as required by the mortgagee
15. Mortgagor to inform mortgagee of any material changes to the property or its
condition (proposed or actual) or changes in the usage of the property and to seek
the bank’s consent to these
Property insurance
The bank shall develop a list of insurance companies whom they will accept as
suitable for providing property insurance cover. In the longer term it is desirable but
not mandatory for the insurance company to be independent from the bank.
1. The property insurance requirements shall include as a minimum:
a. Accidental destruction, accidental damage or spoilage.
b. Insurance value at least equal to the re-instatement value of the property or the
amount of loan, whichever is the higher
c. Any paid claim amount shall be paid to the lender or, with the lender’s
consent, to the Borrower to repair the mortgaged property
d. Any claim amount to be used to reinstate the property
e. Property insured for the duration of the mortgage loan
f. Borrower responsible for premiums with insurance company advising lender
if not paid
g. Policy to be index linked to building costs index (when available)
2. The property insurance shall be effected with a reputable insurer
a. Insurance company established under legislative & regulatory
requirements of Ukraine
b. Commencing 2006 to have at least 3 years experience in underwriting
risks in the residential property market

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Credit enhancement
This is included as a potential requirement for the future. If higher LTV ratios are
envisaged at some future date then the requirement for mortgage indemnity guarantee
insurance will become relevant.
a) Mortgage indemnity guarantee (for discussion – future requirement if LTV
allowed over 70%)
4. LOAN MONITORING AND SERVICING
Mortgage loans shall be monitored by loan officers who are not involved directly in
the initial sales process and who have responsibility for monitoring specific loan
agreements. The responsibilities of these loan officers must include:
a) Maintaining loan files
b) Receiving payments for mortgage loans
c) Processing early (pre-term) payments on mortgage loans and, where
appropriate, recalculating loan repayment schedules
d) Carrying out bank procedures for overdue mortgage loan accounts, including
reminders to borrowers, calculation of penalties and initiation of the bad loans
process for recovery of the debt
e) Reviewing the collateral, property insurance and the borrower's financial
position on a regular basis
f) Carrying out final closing processes on maturity of the loan.
The monitoring division shall also be responsible for producing reporting on the loan
portfolio as required by top management of the bank and by the National Bank of
Ukraine.
The following guidelines identify the minimum requirements for the loan monitoring
process and for providing information to the borrower.
Loan Monitoring & Servicing
1. There shall be a segregation of the loan servicing function, that is, the monitoring
process shall be separate from the sales process and there shall be specialist loan
officers whose responsibility is to monitor mortgage loans.
2. The bank shall have a documented loan workout & loss mitigation process
3. The bank shall have documented loan workout & restructuring approval levels
4. The bank shall have a documented foreclosure, repossession & collateral sale
process
5. Monitoring payment cycle shall include the following steps:
a. During the first 6 months of the loan the loan officer shall remind the
borrower of the payment obligation prior to due the date (normally 2-3
days prior)
b. If the borrower has not paid on due date, the loan officer shall contact the
borrower to:
i. Find out the reasons for default
ii. Remind about penalties that the bank may impose
iii. Advise of the consequences of such penalties for the borrower

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c. If the payment becomes 10 days overdue the loan officer shall send the
borrower a registered letter to:
i. Require an immediate payment of the overdue amount
ii. Warn of the potential consequences of continued non-payment
iii. A copy of the letter shall be placed on the loan file
d. The loan officer shall commence the foreclosure process at the point where
the loan payments become 2 months overdue
6. The collateral shall be reviewed at least annually
7. The borrower's financial status shall be reviewed at least annually
8. The property insurance shall be reviewed at least annually to ensure adequacy and
continuation of cover
Post application information to be provided to borrower
1. Written confirmation of the key terms of the mortgage loan once the contract is
signed
2. Annual statements regarding the mortgage loan detailing the principal
outstanding, the interest payments made during the year and any penalty interest
or other penalty charges
3. Written notice if the mortgage is sold to another lender or financial institution
4. Written notification of early repayment charges and arrears charges
5. The lender's policy or equivalent internal regulations in the case of arrears and/or
possession
6. The lender will inform the borrower on at least an annual basis of any changes in
the fee structure, e.g. redemption penalties, statement fees, re-mortgage fees, etc.
5. MANAGEMENT INFORMATION REPORTING
The bank shall be able to report on and analyse the mortgage loan portfolio to a
considerable degree of detail, with particular focus on collateral data, historical
performance data, prepayment information and loan-specific information.
The following guidelines are the first steps towards developing such a capability.
1. Stratification reports
a. Product code, if applicable (e.g. EBRD tranche)
b. Market segmentation (primary, secondary, reconstruction, refurbishment)
c. Loan to value
d. Year of origination
e. Property type
f. Geographic information by city / region
g. Delinquency / overdue period
h. Risk classification
2. Application data
a. Number of loan applications received
b. Number of loan applications rejected
i. At application stage
ii. At credit committee stage
c. Number of loan offers made but not accepted